Montreal-based Metro Inc. announced it has entered into a definitive agreement to acquire The Jean Coutu Group

Montreal-based Metro Inc. announced it has entered into a definitive
agreement to acquire The Jean Coutu Group (not rated).

Under the terms of the Transaction, Jean Coutu Group shareholders will
receive an aggregate consideration of approximately C$4.5 billion (75% in
cash and 25% in Metro Inc. common shares).

We consider Jean Coutu the leading pharmacy retailer in Quebec, operating
a network of franchise stores that include 419 locations (more than 90%
in Quebec).

As a result, we are affirming our 'BBB' long-term corporate credit and
senior unsecured debt ratings on Metro Inc.

Pro forma for the proposed acquisition, we expect adjusted debt-to-EBITDA
of about 3.0x in fiscal 2018.

The stable outlook reflects our expectation that Metro will improve
adjusted debt-to-EBITDA to the mid-2x area within two years of completing
the acquisition

The affirmation reflects our view that Metro's adjusted debt-to-EBITDA will
increase temporarily to fund the acquisition of The Jean Coutu Group, and that
we expect leverage will return to the mid-2x area in fiscal 2019. Metro Inc.
has access to about C$3.4 billion in committed bank facilities to finance the
cash portion of the transaction. However, we assume the long-term financing of
the cash consideration to include roughly C$1.7 billion of permanent debt
financing, about C$1.6 billion of net proceeds from the sale of its equity
investment in Alimentation Couche-Tard Inc., and about C$190 million of cash
held at Jean Coutu. Our assumed financing of the cash consideration
incorporates Metro's proven track record of adhering to a long-term adjusted
net debt-to-EBITDAR target of 2.5x. Our forecast also assumes modest pro forma
adjusted EBITDA growth from positive same-store-sales (SSS) growth and C$65
million–C$75 million of annual synergies realized within two years of closing
the acquisition. In addition, we assume the company will generate
discretionary cash flow of C$300 million–C$350 million in fiscal 2019 that
should facilitate debt reduction.